What the E*Trade Bailout Says About “Marking to Market”

By Dennis K. Berman

Does one deal a market make?

Citadel’s E*Trade bailout has led some to call a floor for the dodgy mortgage-backed securities that have been rattling the markets. “We finally have a market-determined price for all those mortgage-backed securities, and it is 27 cents on the dollar,” said one analyst. That would presumably have great significance for the likes of Citigroup, Morgan Stanley, and Bear Stearns. The value of this paper has been the primary question mark hanging over the stocks.

But people involved in the E*Trade transaction say it would be folly to expect the deal to put a long-awaited price on these securities, ending the nuclear winter in the market for mortgage-backed debt.

People close to the E*Trade deal caution that the portfolio in question includes a variety of mortgage securities and collateralized debt obligations that make a “one-price-fits-all” assumption tenuous at best.

Some of the underlying mortgages were issued several years ago, making them more secure than more recent vintage ones, many of which are likely worthless. That said, the portfolio doesn’t include more valuable “super senior” class notes — the kind of paper typically held by the banks. The only comparison one could make is for less secure classes of debt, said one person familiar with E*Trades portfolio, which has less bearing on the overall Wall Street question.

Comments (5 of 18)

Unamerica, Ha call their customer service and try to get to speak with an American. They were so unAmerican I pulled all of my money out and now I am shorting them.

4:26 pm March 6, 2009

jon harris wrote :

This bank is a failure, I worst customer service in the industry. India is in charge of the customers.

SHORT MORE

7:16 pm November 30, 2007

Michael Parker, Evergreen Collateral Consulting, LLC wrote :

With regard to short selling, short selling is not un-american. Short selling is what makes the system democratic. If we didn't have short selling we would be Japan, which has a market meltdown every 50 years becuase there is no escape valve (i.e., short selling) to allow for the market to balance itself. While I am not a short seller, I believe in the market dynamic it provides. In our country everyone has a voice. In fact the long sellers have much more of voice than short sellers. It just seems that in this market short sellers have more of a voice becuase of the state the market is currently in. Remember short sellers didn't make this market, greed provided for the deficiencies in the collateral underlying these instruments.

9:19 am November 30, 2007

Hello, anyone look beyond the "financials" wrote :

Their loan-loss provisions and writedowns on their portfolios are a joke, at best. @8:45, perhaps you should have considered that. ETRD is far from a sure thing to the upside. Good try though

9:15 am November 30, 2007

Jones wrote :

Things may be looking up for E*Trade Financial Corp as Citadel Investment Group agreed to make a $2.55 billion investment into the discount brokerage. The NewsVisual article suggests that Donald Layton will bring to the table the experience necessary to help reverse the company's downturn.

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